MUMBAI (Commoditiescontrol) - The Indian government is planning to transfer the difference between the minimum support price (MSP) and market price directly to farmers' bank accounts, informed Textile Commissioner Kavita Gupta after a CAB meeting.
"We are planning to start a pilot project in Maharashtra. Under the project, if farmers sell cotton to traders below the MSP, then the government will pay the difference directly to farmer," Gupta said.
Last year, China introduced a similar kind of policy to safeguard cotton farmers’ interest, which was a huge success. As per the Chinese policy, growers will be subsidised when the market price for cotton falls below pre-set target of CNY 19,800 per ton ($1.45 per pound). This is about 3 percent below the CNY 20,400 per ton guaranteed under the reserve-based system in 2012/13 and 2013/14.
The true purpose of replicating the Chinese policy in Maharashtra is to ensure smooth functioning of the entire cotton business chain right from procurement of kapas from farmers and ending up at cotton selling to ginners.
If implemented in the state, textile and ginning units in Maharashtra would have an edge over those in the other Indian states.
The policy would have a number of positive impact on the overall cotton market business. Indian cotton sector will become more competitive in global markets as Indian cotton bales become cheap when kapas prices are lowered.
Also, yarn market was reeling under pressure last year due to tepid demand amid higher cotton prices. The policy will keep a check on much rise in prices, stabilising prices to a level considered fair by both farmers and traders. This will in turn result in smooth trading.
One of the most important changes it is expected to bring is the country’s ginners’ community becoming active in the business again. The policy would also cheer textile mills as ginners would be able to sell at lower rates in absence of disparity. As kapas was hovering at minimum support price (MSP) level last season, cost of production in making finished goods was increasing. Due to which, prices of bales increased. As a result, cotton yarn prices were much higher and demand was dull, which led to increased inventory of yarn in the country.
Farmers will also be content as they will get actual rates for their produce. It would encourage ginners who were sitting idle during most of the last season.
Last year, nearly 60 percent of the ginning units in the country were closed or were leased to government agencies for their procurement processes.
Secondly, the policy will also lighten the government agencies’ procurement burden as the agencies’ have to undergo a lot of obligations at the time of procurement.
The Cotton Corporation of India (CCI) alone bought around 87 lakh bales of cotton worth around Rs 17,000 crore. Which is around 25 percent of the total crop in the country in the last season. The government’s cotton procurement programme involves ginning, pressing, accounting, manpower etc. In short, agencies can save themselves from the tedious processes involved in kapas procurement.
Additionally, textile mills would be able to purchase bales at actual market rates. Last year, ginning and textile mills had to face huge losses due to disparity in yarn manufacturers’ margin.
If successful in Maharashtra, the government would implement the policy throughout the country, as per another official source.
However, along with the advantages of this refund policy, comes few adverse affect on the business chain. The new policy can give way to price manipulation by farmers and traders to mislead the government.
Market experts are of the opinion that the policy would be a success only when the documentation between farmers, traders and government is clear and transparent.
(By Commoditiescontrol Bureau; +91-22-40015532)